Will Microsoft penetrate VMware's stronghold in the virtualization market by offering the management technologies customers need to control and optimize virtual servers?

VMware dominates the virtualization market, but industry watchers expect hypervisor technology to become secondary to management and other capabilities when customers commit to large virtual server implementations. Can Microsoft unseat the leader by differentiating its hypervisor with advanced management capabilities?

Microsoft's release this week of Hyper-V means there's one more hypervisor in the game -- and one more reason management capabilities will play a large part in determining which vendor will win long-term customer favor by providing the tools to optimize virtualserver environments.

Industry watchers say managing virtual server technologies from x86 environments back to the mainframe, across multi-platform hypervisors and consistently alongside physical machines will be a key differentiator among the vendors seeking market domination. VMware remains ahead in managing its own hypervisor technologies, but with Microsoft's entry into the market, analysts say demands will change and customers will need to do more than monitor a single hypervisor technology with their management tools.

"Virtualization is a game-changing technology, and traditional and emerging management players, and the hypervisor providers, are trying to envision the best strategy to manage it," says Cameron Haight, a research vice president at Gartner.

Here’s a look at how VMware and Microsoft rate today in terms of management expertise.

VMware: Out in front early

Today a majority of customers using x86 virtual server technology depend upon their hypervisor provider for additional management capabilities, according to Gartner. Most customers using x86 virtual server technology use VMware, and that trend will continue as the company looks to invest further into building out its management capabilities.

"Both VMware and Microsoft have gaps in their management capabilities, but VMware seems to have an advantage of manageability [such as VMotion and DRS] that is built into their virtual infrastructure that is often the reason for their selection," Haight says.

But going forward, customers (large ones in particular) will need management tools that report on capacity, performance and availability of not only virtual machines but also physical servers -- which is an advantage for Microsoft. To bolster its capabilities in this area, VMware recently partnered with management software maker HP, which touts platform-agnostic management capabilities across both physical and virtual environments. (Compare server management products.)

"The server admin group is responsible for virtual servers today, and they won't want a separate console or tool to manage just VMware," says Andi Mann, a research vice president with Enterprise Management Associates. "It has yet to be seen what the partnership with HP will deliver, but it gives VMware access to both the physical server and heterogeneous platform management capabilities it will need."

Microsoft: Pricing, physical server expertise attractive

Microsoft may be entering the hypervisor market behind VMware, but the vendor remains a dominant presence in enterprise IT shops, which may ultimately deploy Hyper-V in-house and need ways to manage both vendor environments.

A recent poll conducted at Gartner's Infrastructure, Operations and Management Summit asked about 100 attendees a handful of questions related to VMware's management capabilities and the possibility of using Microsoft tools to manage its competitor's products. About one-third of respondents said VMware needed to work on all areas of its management products including: technology gaps, ease of use and integration, quality and reliability, product support and training, and pricing terms.

"The type of buyer the initial Microsoft release will get to is very price-sensitive. These are people who will sacrifice some features and functions to get access to the hypervisor technology at prices lower than what VMware is offering," says Stephen Elliot, research director for IDC's Enterprise Systems Management Software Service. "Microsoft is also touting a differentiator; they understand the physical side of the issue for Windows and will put the two together in one console."

Another poll question conducted by Gartner asked the same attendees if they would consider managing VMware environments with Microsoft products. About one-third of respondents currently using Microsoft System Center tools said they would consider it and another 16% would also look to Microsoft to manage VMware virtual servers for other unstated reasons. The remaining respondents, 15% of which were using System Center, said they would not consider Microsoft. Still, the opportunity is there for Microsoft to infiltrate VMware customers with added management capabilities.

"VMware's focus is of course primarily at the virtualization layer. Administrators, however, may need tools that not only provide insight into the health of the hypervisor, but also provides detailed knowledge of the guest virtual machine as well as the physical hardware that the virtualization technology runs on top of or interacts with [i.e., storage, network and so forth]," Gartner's Haight says.

Small businesses up for grabs

If customers buy management tools from their hypervisor providers, then the vendor with the most market penetration could ultimately have an advantage.

Gartner estimates that 7% of all workloads in 2007 were on x86 virtual servers, nearly all of which can be traced back to VMware. The research firm expects more than 60% of workloads to reside on x86 virtual servers by 2013. According to Gartner, 10% to 15% of large enterprise companies are investing in the technology. In addition, VMware is in 90% of the Fortune 1000, and 1% to 2% of small businesses have started working with the technology.

VMware will be in a good position to continue to sell its management capabilities to existing large customers, but the lack of physical management capabilities previously mentioned could hurt the vendor here. In addition, while VMware has a strong track record winning over big customers, industry watchers say it may have missed its opportunity to penetrate small businesses -- leaving that large opportunity up for grabs by Microsoft.

"The enterprise is going to be very leery of Microsoft, but the on-ramp to VMware is a bit steep for small businesses. VMware doesn't want to lose that potential business, but the company was getting a bit drunk on enterprise dollars," says Thomas Bittman, Gartner vice president and distinguished analyst. "Microsoft could grab small businesses and grow up, and VMware should do anything it can do to get that market share, even if it costs revenue."

By packaging its hypervisor with a server release, Microsoft will gain access into many accounts -- except the adoption curve may mirror that of servers, which could hold Hyper-V back a bit, Bittman says. But overall industry watchers expect Hyper-V to take off with small customers.

"Any customer is liable to use Hyper-V. It is being packaged with Windows Server 2008, which makes it much easier to deploy than ESX Server," EMA's Mann says.

And once Hyper-V is in small shops, Microsoft will have the opportunity to sell its management capabilities and add-on products to those customers. "Microsoft has a history of coming in low and gaining market share," IDC's Elliot says.